CubeSmart(CUBE) - 2021 Q1 - Quarterly Report

Introduction and Explanatory Note Company Structure and Reporting This report consolidates the quarterly filings of CubeSmart (Parent Company) and CubeSmart, L.P. (Operating Partnership) to provide a comprehensive business overview and enhance reporting efficiency - The report combines filings for CubeSmart (Parent Company, REIT) and CubeSmart, L.P. (Operating Partnership)[4] - As of March 31, 2021, the Parent Company owned a 96.5% interest in the Operating Partnership and acts as its sole general partner[5] - The combined report facilitates investor understanding, removes duplicative disclosures, and creates time and cost efficiencies[9] Forward-Looking Statements Disclaimer and Risk Factors This section disclaims forward-looking statements, noting that actual results may materially differ due to economic, competitive, financing, interest rate, and pandemic-related risks - Forward-looking statements are subject to risks, uncertainties, and other factors that may cause actual results to differ materially[18] - Key risks include adverse changes in economic, business, and real estate market conditions, competition, failure to execute business plans, and adverse impacts from the COVID-19 pandemic[18] - Other risks include reduced capital availability, financing risks (over-leverage, default), increases in interest rates and operating costs, and cyber security breaches[18] ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets (CubeSmart and Subsidiaries) CubeSmart's consolidated balance sheets show a slight decrease in total assets and liabilities, resulting in an increase in total shareholders' equity from December 2020 to March 2021 Consolidated Balance Sheet Highlights (CubeSmart) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Storage properties, net | $4,494,471 | $4,505,814 | | Cash and cash equivalents | $3,650 | $3,592 | | Total assets | $4,754,478 | $4,778,142 | | Total liabilities | $2,589,630 | $2,687,880 | | Total CubeSmart shareholders' equity | $1,877,602 | $1,832,216 | Consolidated Statements of Operations (CubeSmart and Subsidiaries) CubeSmart reported increased total revenues and net income for Q1 2021, driven by higher rental income despite increased operating expenses, particularly depreciation and amortization Consolidated Statements of Operations Highlights (CubeSmart) | Metric (in thousands, except per share) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Total revenues | $188,841 | $164,081 | | Total operating expenses | $125,954 | $106,943 | | Net income | $43,315 | $38,317 | | Net income attributable to the Company's common shareholders | $41,732 | $37,896 | | Basic earnings per share | $0.21 | $0.20 | - Total revenues increased by $24.76 million (15.1%) year-over-year[27] - Net income attributable to common shareholders increased by $3.836 million (10.1%) year-over-year[27] Consolidated Statements of Comprehensive Income (Loss) (CubeSmart and Subsidiaries) CubeSmart's consolidated comprehensive income increased, primarily due to higher net income and a minor reclassification of realized losses on interest rate swaps Consolidated Statements of Comprehensive Income (CubeSmart) | Metric (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net income | $43,315 | $38,317 | | Other comprehensive income | $20 | $20 |\n| Comprehensive income attributable to the Company | $41,751 | $37,916 | Consolidated Statement of Equity (CubeSmart and Subsidiaries) CubeSmart's total shareholders' equity increased from December 2020 to March 2021, driven by common share issuance and net income, partially offset by distributions - Total CubeSmart shareholders' equity increased from $1,832,216 thousand at December 31, 2020, to $1,877,602 thousand at March 31, 2021[32] - Issuance of common shares, net, contributed $99,688 thousand to equity[32] - Common share distributions totaled $(68,350) thousand for the three months ended March 31, 2021[32] Consolidated Statements of Cash Flows (CubeSmart and Subsidiaries) CubeSmart experienced increased operating cash flow and decreased investing cash outflow, while financing cash outflow rose due to higher debt payments partially offset by equity issuance Consolidated Statements of Cash Flows Highlights (CubeSmart) | Activity (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $98,182 | $80,949 | | Net cash used in investing activities | $(20,532) | $(34,784) | | Net cash used in financing activities | $(77,887) | $(66,127) | | Change in cash, cash equivalents and restricted cash | $(237) | $(19,962) | - Net cash provided by operating activities increased by $17,233 thousand (21.3%) YoY[35] - Net cash used in investing activities decreased by $14,252 thousand (41.0%) YoY[35] Consolidated Balance Sheets (CubeSmart, L.P. and Subsidiaries) CubeSmart, L.P.'s consolidated balance sheets mirror the Parent Company's, reflecting the UPREIT structure where the Operating Partnership holds most assets and conducts operations Consolidated Balance Sheet Highlights (CubeSmart, L.P.) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Storage properties, net | $4,494,471 | $4,505,814 | | Cash and cash equivalents | $3,650 | $3,592 | | Total assets | $4,754,478 | $4,778,142 | | Total liabilities | $2,589,630 | $2,687,880 | | Total capital | $1,886,199 | $1,840,848 | Consolidated Statements of Operations (CubeSmart, L.P. and Subsidiaries) CubeSmart, L.P.'s consolidated statements of operations align with the Parent Company's, showing increased total revenues and net income for Q1 2021, driven by rental income growth Consolidated Statements of Operations Highlights (CubeSmart, L.P.) | Metric (in thousands, except per unit) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Total revenues | $188,841 | $164,081 | | Total operating expenses | $125,954 | $106,943 | | Net income | $43,315 | $38,317 | | Net income attributable to common unitholders | $41,732 | $37,896 | | Basic earnings per unit | $0.21 | $0.20 | Consolidated Statements of Comprehensive Income (Loss) (CubeSmart, L.P. and Subsidiaries) CubeSmart, L.P.'s consolidated comprehensive income statements are consistent with the Parent Company's, showing increased comprehensive income attributable to the Operating Partner Consolidated Statements of Comprehensive Income (CubeSmart, L.P.) | Metric (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net income | $43,315 | $38,317 | | Other comprehensive income | $20 | $20 |\n| Comprehensive income attributable to Operating Partner | $41,751 | $37,916 | Consolidated Statement of Capital (CubeSmart, L.P. and Subsidiaries) CubeSmart, L.P.'s total capital increased, driven by net income and common OP unit issuance, partially offset by distributions and limited partnership interest adjustments - Total CubeSmart, L.P. Capital increased from $1,832,216 thousand at December 31, 2020, to $1,877,602 thousand at March 31, 2021[48] - Issuance of common OP units, net, contributed $99,688 thousand to capital[48] - Common OP unit distributions totaled $(68,350) thousand for the three months ended March 31, 2021[48] Consolidated Statements of Cash Flows (CubeSmart, L.P. and Subsidiaries) CubeSmart, L.P.'s cash flow statements align with the Parent Company's, showing increased operating cash, decreased investing cash outflow, and increased financing cash outflow Consolidated Statements of Cash Flows Highlights (CubeSmart, L.P.) | Activity (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $98,182 | $80,949 | | Net cash used in investing activities | $(20,532) | $(34,784) | | Net cash used in financing activities | $(77,887) | $(66,127) | | Change in cash, cash equivalents and restricted cash | $(237) | $(19,962) | Notes to Unaudited Consolidated Financial Statements 1. Organization and Nature of Operations CubeSmart operates as a self-managed REIT through its UPREIT structure, owning self-storage properties in 24 states and D.C., with operations subject to seasonal occupancy - CubeSmart operates as a REIT through an UPREIT structure, with the Parent Company as the sole general partner of the Operating Partnership[53][54] - As of March 31, 2021, the Company owned self-storage properties in 24 states and the District of Columbia[53] - The Company typically experiences seasonal fluctuations in occupancy, with slightly higher levels during summer months[55] 2. Summary of Significant Accounting Policies This section details the basis of presentation for unaudited consolidated financial statements, including GAAP and SEC rules, Operating Partnership consolidation as a VIE, and the immaterial impact of ASU 2020-06 - Financial statements are prepared under GAAP and SEC rules for interim reporting, including normal recurring adjustments[56] - The Operating Partnership is a Variable Interest Entity (VIE) consolidated by the Parent Company[57] - ASU 2020-06, effective January 1, 2022, is not expected to have a material impact on the Company's consolidated financial statements[59] 3. Storage Properties The Company's net storage properties were valued at $4,494,471 thousand as of March 31, 2021, following 21 acquisitions and 1 disposition since January 2020 Book Value of Real Estate Assets (in thousands) | Asset Category | March 31, 2021 | December 31, 2020 | | :------------- | :------------- | :---------------- | | Land | $1,100,598 | $1,093,503 | | Buildings and improvements | $4,130,146 | $4,122,995 | | Equipment | $120,871 | $123,044 | | Construction in progress | $98,913 | $108,316 | | Right-of-use assets - finance leases | $41,655 | $41,896 | | Storage properties | $5,492,183 | $5,489,754 | | Less: Accumulated depreciation | $(997,712) | $(983,940) | | Storage properties, net | $4,494,471 | $4,505,814 | Acquisition and Disposition Activity (Jan 1, 2020 - Mar 31, 2021) | Activity | Number of Stores | Purchase / Sale Price (in thousands) | | :------- | :--------------- | :----------------------------------- | | 2020 Acquisitions | 21 | $735,875 | | 2020 Disposition | 1 | $12,750 | 4. Investment Activity No wholly-owned store acquisitions or dispositions occurred in Q1 2021, while 2020 saw significant acquisitions and ongoing joint venture development projects totaling $124.3 million in expected construction costs - No wholly-owned store acquisitions or dispositions occurred during the three months ended March 31, 2021[63] - In December 2020, the Company acquired 8 Storage Deluxe Assets for $540.0 million, funded by assumed mortgage loans, cash, and OP Units[64] - As of March 31, 2021, the Company had invested in joint ventures to develop five self-storage properties with expected total construction costs of $124.3 million[68] 5. Investment in Unconsolidated Real Estate Ventures The Company holds equity method investments in five unconsolidated real estate ventures, owning 85 stores with a carrying value of $93,797 thousand and reporting a net loss for Q1 2021 Unconsolidated Real Estate Ventures Summary | Venture | CubeSmart Ownership Interest | Number of Stores (Mar 31, 2021) | Carrying Value of Investment (Mar 31, 2021, in thousands) | | :------ | :--------------------------- | :------------------------------ | :-------------------------------------------------------- | | HVP V | 20% | 1 | $2,819 | | HVPSE | 10% | 14 | $4,829 | | HVP IV | 20% | 22 | $25,348 | | HHFNE | 10% | 13 | $1,524 | | HHF | 50% | 35 | $59,277 | | Total | | 85 | $93,797 | Results of Operations of Ventures (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :----- | :-------------------------------- | :-------------------------------- | | Total revenues | $18,823 | $14,605 | | Net loss | $(2,027) | $(1,593) | | Company's share of net income (loss) | $20 | $(5) | - The Ventures are not consolidated by the Company and are accounted for under the equity method[80] 6. Other Assets Other assets, net, decreased to $157,189 thousand by March 31, 2021, primarily due to reductions in intangible assets and prepaid property taxes Components of Other Assets, Net (in thousands) | Asset Category | March 31, 2021 | December 31, 2020 | | :------------- | :------------- | :---------------- | | Intangible assets, net | $42,867 | $57,820 | | Accounts receivable, net | $5,313 | $5,829 | | Prepaid property taxes | $5,403 | $6,334 | | Amounts due from affiliates | $15,048 | $13,130 | | Assets held in trust related to deferred compensation arrangements | $19,345 | $17,207 | | Right-of-use assets - operating leases | $54,989 | $55,302 | | Total other assets, net | $157,189 | $170,753 | 7. Unsecured Senior Notes The Company's unsecured senior notes totaled $2,030,999 thousand, net, as of March 31, 2021, with varying maturities and interest rates, and the Operating Partnership remained compliant with all covenants Unsecured Senior Notes Summary (in thousands) | Note Series | Principal Balance Outstanding | Effective Interest Rate | Maturity Date | | :---------- | :---------------------------- | :---------------------- | :------------ | | $300M 4.375% due 2023 | $300,000 | 4.33% | Dec-23 | | $300M 4.000% due 2025 | $300,000 | 3.99% | Nov-25 | | $300M 3.125% due 2026 | $300,000 | 3.18% | Sep-26 | | $350M 4.375% due 2029 | $350,000 | 4.46% | Feb-29 | | $350M 3.000% due 2030 | $350,000 | 3.04% | Feb-30 | | $450M 2.000% due 2031 | $450,000 | 2.10% | Feb-31 | | Total Principal Balance | $2,050,000 | | | | Total unsecured senior notes, net (Mar 31, 2021) | $2,030,999 | | | - The Operating Partnership was in compliance with all financial covenants, including leverage and interest coverage ratios, as of March 31, 2021[91] 8. Revolving Credit Facility The Company maintains a $750.0 million unsecured revolving credit facility maturing in June 2024, with $696.6 million available and compliance with all financial covenants as of March 31, 2021 - The Company's Revolving Credit Facility is a $750.0 million unsecured revolving facility maturing on June 19, 2024[92] - As of March 31, 2021, the effective interest rate on borrowings was 1.21%, and $696.6 million was available for borrowing[93] - The Company was in compliance with all financial covenants, including maximum total indebtedness to total asset value (60.0%) and minimum fixed charge coverage ratio (1.5:1.0)[95] 9. Mortgage Loans and Notes Payable Mortgage loans and notes payable, net, decreased to $171,189 thousand by March 31, 2021, primarily due to loan repayments, with future principal payments totaling $158,119 thousand Mortgage Loans and Notes Payable Summary (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :----- | :------------- | :---------------- | | Principal balance outstanding | $158,119 | $202,768 | | Plus: Unamortized fair value adjustment | $15,080 | $15,879 | | Less: Loan procurement costs, net | $(2,010) | $(2,143) | | Total mortgage loans and notes payable, net | $171,189 | $216,504 | - Two mortgage loans (Bronx IX, NY and Bronx X, NY) totaling $44,178 thousand were repaid in full on March 1, 2021[96] Future Principal Payment Requirements on Mortgage Loans (in thousands) | Year | Amount | | :--- | :----- | | 2021 | $1,733 | | 2022 | $2,426 | | 2023 | $32,591 | | 2024 | $32,329 | | 2025 | $979 | | 2026 and thereafter | $88,061 | | Total mortgage payments | $158,119 | 10. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss decreased to $(636) thousand by March 31, 2021, mainly due to a reclassification of realized losses on interest rate swaps Changes in Accumulated Other Comprehensive Loss (in thousands) | Metric | March 31, 2021 | | :----- | :------------- | | Beginning balance | $(656) | | Reclassification of realized losses on interest rate swaps | $20 | | Ending balance | $(636) | | Less: portion included in noncontrolling interests in the Operating Partnership | $23 | | Total accumulated other comprehensive loss included in equity | $(613) | 11. Risk Management and Use of Financial Instruments The Company uses interest rate swap agreements for risk management, not speculation, applying hedge accounting for effective derivatives, with all instruments settled and reclassified losses amortized - The Company uses interest rate swap agreements to manage interest rate risk, not for speculative purposes[100] - Hedge accounting is applied for highly-effective derivatives, deferring gains or losses in shareholders' equity[101] - All derivative instruments were settled as of March 31, 2021, with $0.8 million termination premium from 2019 swaps being amortized into interest expense over the life of the 2029 Notes[101][102] 12. Fair Value Measurements The Company uses a fair value hierarchy for financial instruments, with no assets or liabilities carried at fair value, and estimated debt fair value at $2,348,913 thousand as of March 31, 2021 - Fair value measurements are based on a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable prices corroborated by market data), and Level 3 (unobservable inputs)[105][106] - No financial assets or liabilities were carried at fair value as of March 31, 2021, or December 31, 2020[107] Carrying Value and Estimated Fair Value of Debt (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :----- | :------------- | :---------------- | | Carrying value | $2,254,988 | $2,364,676 | | Fair value | $2,348,913 | $2,571,300 | 13. Noncontrolling Interests Noncontrolling interests represent third-party ownership in six consolidated joint ventures and the Operating Partnership, with limited partners holding 3.5% of OP Units with redemption rights Consolidated Joint Ventures Summary (March 31, 2021, in thousands) | Joint Venture | Number of Stores | CubeSmart Ownership Interest | Total Assets | Total Liabilities | | :------------ | :--------------- | :--------------------------- | :----------- | :---------------- | | Vienna | 1 | 72% | $17,865 | $6,553 | | Merrick | 1 | 51% | $15,626 | $8,181 | | VFV | 1 | 70% | $20,654 | $12,333 | | Hempstead | 1 | 51% | $24,336 | $7,104 | | Newton | 1 | 90% | $18,345 | $11,828 | | SH3 | 1 | 90% | $39,659 | $6,667 | | Total | 6 | | $136,485 | $52,666 | - Approximately 3.5% of outstanding OP Units were held by third parties as of March 31, 2021, with redemption rights for cash or common shares[117] - The Operating Partnership recorded an increase of $32.1 million in the value of OP Units owned by third parties at March 31, 2021[120] 14. Leases The Company acts as both lessor and lessee, recognizing self-storage rental income on a straight-line basis and reporting total lease costs of $1,895 thousand for Q1 2021 - As a lessor, the Company derives rental income from month-to-month self-storage operating leases, recognizing income on a straight-line basis[121][123] - As a lessee, the Company has finance and operating leases for land, office space, and equipment, with lease terms up to 44 years[124] Lease Cost Components (in thousands) | Lease Cost Component | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------- | :-------------------------------- | :-------------------------------- | | Amortization of finance lease right-of-use assets | $241 | $— | | Interest expense related to finance lease liabilities | $526 | $— | | Operating lease cost | $822 | $746 | | Short-term lease cost | $306 | $308 | | Total lease cost | $1,895 | $1,054 | 15. Commitments and Contingencies The Company is involved in routine legal proceedings, establishing accrued liabilities for probable and estimable loss contingencies, with management believing adequate provisions are in place - The Company is involved in routine claims and administrative proceedings in the ordinary course of business[132] - Accrued liabilities are established for loss contingencies that are both probable and reasonably estimable[132] - Management believes adequate provisions have been made for potential liabilities[133] 16. Related Party Transactions The Company provides management services to related parties, generating $1.0 million in management fees from unconsolidated ventures and reporting $15.0 million due from affiliates for Q1 2021 - Management fees from unconsolidated real estate ventures and other entities totaled $1.0 million for the three months ended March 31, 2021, up from $0.9 million in 2020[135] - Amounts due from affiliates for management fees, payroll, and other store expenses were $15.0 million as of March 31, 2021[136] - Property transaction fees recognized from HVP V, HVPSE, HVP IV, and HHFNE totaled $0.2 million for Q1 2021[137] 17. Subsequent Events On April 16, 2021, the Company invested $3.4 million for a 50% interest in a new Minnesota self-storage joint venture and funded $5.5 million of a related loan commitment - On April 16, 2021, the Company acquired a 50% interest in a joint venture in Minnesota for $3.4 million[138] - The Company funded $5.5 million of a $6.1 million related party loan commitment to this new joint venture[138] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview CubeSmart is an integrated self-storage REIT, owning 543 properties and managing 701 for third parties, with revenues primarily from month-to-month rentals sensitive to economic and seasonal factors - CubeSmart is an integrated self-storage real estate company with in-house capabilities in operation, design, development, leasing, management, and acquisition[141] - As of March 31, 2021, the Company owned 543 self-storage properties (38.7 million rentable square feet) and managed 701 stores for third parties, totaling 1,244 stores[141] - Revenues are principally derived from month-to-month rental income, with operating results dependent on customer retention, new leases, pricing, and rent collection[142] Summary of Critical Accounting Policies and Estimates This section details critical accounting policies and estimates, including financial statement consolidation, property valuation and depreciation, and equity method accounting for unconsolidated ventures, emphasizing management judgment - Consolidated financial statements include all accounts of the Company and its majority-owned/controlled subsidiaries, with noncontrolling interests presented separately[149] - Self-storage properties are recorded at cost less accumulated depreciation, with purchase prices allocated to tangible and intangible assets based on fair values[151][152] - Investments in unconsolidated real estate ventures are accounted for under the equity method, with periodic assessments for impairment[157] Results of Operations Acquisition and Development Activities The Company's owned store count increased to 543 by December 31, 2020, primarily through acquisitions, with further store combinations occurring in Q1 2021 and Q4 2020 Change in Number of Owned Stores (Jan 1, 2020 - Mar 31, 2021) | Period | Stores Acquired | Stores Developed | Stores Combined | Stores Sold | Balance | | :----- | :-------------- | :--------------- | :-------------- | :---------- | :------ | | Jan 1, 2020 | | | | | 523 | | Q1 2020 | 1 | — | — | — | 524 | | Q2 2020 | 2 | 1 | — | — | 527 | | Q3 2020 | — | — | — | — | 527 | | Q4 2020 | 18 | — | (1) | (1) | 543 | - A developed store in Arlington, VA, was combined with an existing consolidated joint venture store in Q1 2021[162] - An acquired store in Merritt Island, FL, was combined with an existing wholly-owned store in Q4 2020[163] Impact of COVID-19 The Company's assessment of the COVID-19 pandemic's impact remains consistent with its 2020 Annual Report, though future effects depend on the pandemic's evolving duration and scope - The assessment of COVID-19 impact has not materially changed from the 2020 Annual Report[164] - Future business, financial condition, results of operations, access to capital, and share price may still be impacted by the pandemic's duration and governmental/business responses[164] Revenues Total revenues increased by 15.1% to $188.8 million in Q1 2021, primarily driven by a 15.2% rise in rental income from increased same-store occupancy and new acquisitions Revenue Comparison (in thousands) | Revenue Category | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change ($) | Change (%) | | :--------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Rental income | $162,476 | $140,985 | $21,491 | 15.2% | | Other property related income | $19,304 | $16,902 | $2,402 | 14.2% | | Property management fee income | $7,061 | $6,194 | $867 | 14.0% | | Total revenues | $188,841 | $164,081 | $24,760 | 15.1% | - Same-store rental income increased by $9.9 million, primarily due to a 3.1% increase in average occupancy[167] - Customer storage protection plan participation increased by $1.8 million, contributing to other property related income[168] Operating Expenses Total operating expenses increased by 17.8% to $125.9 million in Q1 2021, mainly due to a 31.8% rise in depreciation and amortization from new stores and increased property operating and general and administrative expenses Operating Expense Comparison (in thousands) | Expense Category | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change ($) | Change (%) | | :--------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Property operating expenses | $61,228 | $55,740 | $5,488 | 9.8% | | Depreciation and amortization | $53,810 | $40,838 | $12,972 | 31.8% | | General and administrative | $10,916 | $10,365 | $551 | 5.3% | | Total operating expenses | $125,954 | $106,943 | $19,011 | 17.8% | - The $13.0 million increase in depreciation and amortization is primarily attributable to newly acquired or developed stores[171] - Increased personnel expenses to support growth contributed to the rise in general and administrative costs[172] Other (Expense) Income Total other expense increased by 4.0% to $19.6 million in Q1 2021, driven by higher interest expense on loans despite lower rates, while equity in real estate ventures improved to a gain Other (Expense) Income Comparison (in thousands) | Category | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change ($) | Change (%) | | :------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Interest expense on loans | $(19,234) | $(18,681) | $(553) | (3.0)% | | Loan procurement amortization expense | $(1,035) | $(754) | $(281) | (37.3)% | | Equity in earnings (losses) of real estate ventures | $20 | $(5) | $25 | 500.0% | | Other | $677 | $619 | $58 | 9.4% | | Total other expense | $(19,572) | $(18,821) | $(751) | (4.0)% | - Interest expense increased due to a $382.2 million increase in average outstanding debt balance, despite a lower weighted average effective interest rate (3.39% vs. 3.96%)[173] Cash Flows Operating cash flow increased by $17.2 million to $98.2 million in Q1 2021, investing cash outflow decreased by $14.3 million, and financing cash outflow increased by $11.8 million Cash Flow Comparison (in thousands) | Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change ($) | | :------- | :-------------------------------- | :-------------------------------- | :--------- | | Operating activities | $98,182 | $80,949 | $17,233 | | Investing activities | $(20,532) | $(34,784) | $14,252 | | Financing activities | $(77,887) | $(66,127) | $(11,760) | - Increased cash flow from operating activities was primarily due to newly acquired/developed stores and increased net operating income in the same-store portfolio[174] - Financing activities saw a $65.0 million increase in net revolving credit facility payments and $44.0 million increase in mortgage loan principal payments, offset by $99.7 million from common share issuance[176][178] Liquidity and Capital Resources Liquidity Overview Cash flow from operations is the primary liquidity source, funding debt service, distributions, and capital expenditures, with $3.7 million cash and $696.6 million credit facility availability as of March 31, 2021 - Cash flow from operations is the primary source of liquidity, used to fund debt service, distributions, and capital expenditures[180] - As a REIT, the Parent Company must distribute at least 90% of REIT taxable income annually[181] - For the remainder of 2021, expected capital expenditures range from $8.0-$13.0 million (recurring), $7.0-$12.0 million (improvements), and $20.0-$30.0 million (new store development)[182] - As of March 31, 2021, the Company had $3.7 million in cash and $696.6 million available under its Amended and Restated Credit Facility[186] Unsecured Senior Notes The Company's unsecured senior notes totaled $2,030,999 thousand, net, as of March 31, 2021, with the Operating Partnership maintaining compliance with all financial covenants Unsecured Senior Notes Summary (in thousands) | Note Series | Principal Balance Outstanding | Effective Interest Rate | Maturity Date | | :---------- | :---------------------------- | :---------------------- | :------------ | | $300M 4.375% due 2023 | $300,000 | 4.33% | Dec-23 | | $300M 4.000% due 2025 | $300,000 | 3.99% | Nov-25 | | $300M 3.125% due 2026 | $300,000 | 3.18% | Sep-26 | | $350M 4.375% due 2029 | $350,000 | 4.46% | Feb-29 | | $350M 3.000% due 2030 | $350,000 | 3.04% | Feb-30 | | $450M 2.000% due 2031 | $450,000 | 2.10% | Feb-31 | | Total Principal Balance | $2,050,000 | | | | Total unsecured senior notes, net (Mar 31, 2021) | $2,030,999 | | | - The Operating Partnership was in compliance with all financial covenants under the Senior Notes as of March 31, 2021[190] Revolving Credit Facility The Company's $750.0 million unsecured revolving credit facility matures in June 2024, with $696.6 million available and compliance with all financial covenants as of March 31, 2021 - The Revolving Credit Facility is a $750.0 million unsecured facility maturing on June 19, 2024[191] - As of March 31, 2021, $696.6 million was available for borrowing under the Revolver, with an effective interest rate of 1.21%[192] - The Company was in compliance with all financial covenants, including maximum total indebtedness to total asset value (60.0%) and minimum fixed charge coverage ratio (1.5:1.0)[194] At-the-Market Equity Program The Company sold 2.8 million common shares for $99.7 million net proceeds in Q1 2021 through its at-the-market equity program, with 8.1 million shares remaining available - The Company sold 2.8 million common shares through its 'at-the-market' equity program during Q1 2021[196] - Net proceeds from these sales totaled $99.7 million, used for self-storage property development and general corporate purposes[196] - As of March 31, 2021, 8.1 million common shares remained available for issuance under the program[196] Recent Developments On April 16, 2021, the Company invested $3.4 million for a 50% joint venture interest in a Minnesota self-storage property and funded $5.5 million of a related loan commitment - On April 16, 2021, the Company acquired a 50% interest in a Minnesota self-storage joint venture for $3.4 million[197] - The Company also funded $5.5 million of a $6.1 million related party loan commitment to this joint venture[197] Non-GAAP Financial Measures This section defines and reconciles Non-GAAP financial measures like NOI, FFO, and FFO, as adjusted, used by management and investors to evaluate operating performance and store-level productivity - NOI is defined as total continuing revenues less continuing property operating expenses, used to evaluate store-level operating performance[198][200] - FFO is defined as net income (GAAP) excluding gains/losses from real estate sales and related impairment charges, plus real estate depreciation and amortization, and adjustments for unconsolidated partnerships[203] - FFO, as adjusted, further excludes acquisition-related costs, gains/losses from early extinguishment of debt, and non-recurring items to reflect ongoing operating results[206] Reconciliation of Net Income to FFO and FFO, as adjusted (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :----- | :-------------------------------- | :-------------------------------- | | Net income attributable to the Company's common shareholders | $41,732 | $37,896 | | Add: Real estate depreciation and amortization | $52,852 | $40,008 | | Add: Company's share of unconsolidated real estate ventures | $1,873 | $1,709 | | Add: Noncontrolling interests in the Operating Partnership | $1,549 | $383 | | FFO attributable to common shareholders and OP unitholders | $98,006 | $79,996 | | Add: Loss on early repayment of debt | $423 | $— | | FFO, as adjusted, attributable to common shareholders and OP unitholders | $98,429 | $79,996 | Off-Balance Sheet Arrangements The Company reports no significant off-balance sheet arrangements, financings, or relationships with unconsolidated entities, except for co-investment partnerships - The Company does not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities (other than co-investment partnerships)[210] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk The Company's investment policy for cash and cash equivalents prioritizes principal preservation and liquidity while maximizing returns - The Company's investment policy for cash and cash equivalents is to preserve principal and liquidity while maximizing return[212] Effect of Changes in Interest Rates on our Outstanding Debt As of March 31, 2021, consolidated debt included $2,208.1 million fixed-rate and $52.8 million floating-rate debt, with a 100 basis point rate increase impacting earnings by $0.5 million and fixed-rate debt fair value by $131.1 million - As of March 31, 2021, consolidated debt included $2,208.1 million of fixed-rate debt and $52.8 million of floating-rate debt[215] - A 100 basis point increase in market interest rates would decrease annual earnings and cash flows by approximately $0.5 million for variable-rate debt[216] - A 100 basis point increase in market interest rates would decrease the fair value of outstanding fixed-rate debt by approximately $131.1 million[217] ITEM 4. CONTROLS AND PROCEDURES Controls and Procedures (Parent Company) The Parent Company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes in internal control over financial reporting during the quarter - The Parent Company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2021[219] - No material change in the Parent Company's internal control over financial reporting occurred during the most recent fiscal quarter[220] Controls and Procedures (Operating Partnership) The Operating Partnership's disclosure controls and procedures were effective as of March 31, 2021, with no material changes in internal control over financial reporting during the quarter - The Operating Partnership's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2021[224] - No material change in the Operating Partnership's internal control over financial reporting occurred during the most recent fiscal quarter[225] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not aware of any pending legal proceedings, beyond routine actions, that would materially adversely affect its financial condition or operations - No material legal proceedings are pending against the Company[226] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Repurchases of Parent Company Common Shares The Parent Company has a 3.0 million common share repurchase program with no repurchases to date, though 21,367 shares were withheld in Q1 2021 for employee tax obligations - The Parent Company has a share repurchase program for up to 3.0 million common shares, with no repurchases made to date under this program[227] Repurchases of Parent Company Common Shares (Q1 2021) | Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share | | :----- | :----------------------------------- | :--------------------------- | | January 1 - January 31 | 19,450 | $33.95 | | February 1 - February 28 | 1,832 | $35.84 | | March 1 - March 31 | 85 | $37.29 | | Total | 21,367 | $34.12 | - The purchased shares represent common shares withheld to cover employee tax obligations upon vesting of restricted shares[229] ITEM 6. EXHIBITS This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and Inline XBRL financial information - Exhibits include certifications of Chief Executive Officer and Chief Financial Officer for both CubeSmart and CubeSmart, L.P. (Exhibits 31.1-31.4, 32.1-32.2)[231] - Inline XBRL financial information for the three months ended March 31, 2021, is also filed (Exhibit 101, 104)[231] SIGNATURES OF REGISTRANT Signatures The report was duly signed on April 30, 2021, by Christopher P. Marr (CEO) and Timothy M. Martin (CFO) for both CubeSmart entities - The report was signed on April 30, 2021[234][235] - Signatories include Christopher P. Marr, Chief Executive Officer, and Timothy M. Martin, Chief Financial Officer, for both CubeSmart and CubeSmart, L.P.[234][235]